British investment managers have received approval to develop tokenised funds, a process where assets are divided into smaller tokens supported by blockchain technology, as stated by the industry’s trade body last Friday.
Tokenisation, also known as fractionalisation of funds, aims to facilitate cheaper and more transparent trading of a fund’s assets. It also allows investors to access a broader range of assets, according to advocates in the industry.
The Investment Association announced that funds approved by Britain’s Financial Conduct Authority are now able to begin creating tokenised funds. This is conditional on the investments being in mainstream assets and maintaining existing valuation and settlement processes.
Michelle Scrimgeour, chief executive of Legal & General Investment Management said, “Fund tokenisation has great potential to revolutionise how our industry operates, by enabling greater efficiency and liquidity, enhanced risk management and the creation of more bespoke portfolios.”
Scrimgeour leads a working group collaborating with the FCA and Britain’s finance ministry to facilitate the adoption of tokenised funds. The group includes significant members like BlackRock, M&G, and Schroders.
Blockchain, the technology behind this initiative, functions as a digital ledger to record token ownership. Its primary use has been in cryptocurrencies, which still represent a minor segment of the global financial system.
In the wake of Brexit, the UK is endeavouring to enhance liquidity in its asset management sector by revising its regulations.
Investment managers and exchanges in the United States, Europe, and Asia have already begun exploring the possibilities of offering tokenised funds.